In practical life we find not only competition, monopoly and the antagonism between them, but also the synthesis of the two, which is not a formula, but a movement. Monopoly produces competition, competition produces monopoly. Monopolists are made from competition; competitors become monopolists. If the monopolists restrict their mutual competition by means of partial associations, competition increases among the workers; and the more the mass of the proletarians grows as against the monopolists of one nation, the more desperate competition becomes between the monopolists of different nations. The synthesis is of such a character that monopoly can only maintain itself by continually entering into the struggle of competition.
Karl Marx
The Poverty of Philosophy
Chapter Two: The Metaphysics of Political Economy
Mittal is the largest steel company in the world and about to become bigger. Mittal waited like a bird of prey this week as two majour European steel companies; Arcelor and ThyssenKrupp finalized a three month bidding war for Canadian steel maker Dofasco. In a smooth move out of a game of five card stud Mittal shocked the business world, by its acquisition of the successful bidder for Dofasco; Arcelor
In a move that was strictly casino capitalism in the raw Mittal sat out the bidding war for Dofasco between Arcelor and ThyssenKrupp.ThyssenKrupp quit bidding at the begining of this week at $68 a share and Dofasco accepted Arcelor offer of $71 per share.
Mittal swooped in on the cash weakened Arcelor and in a hostile bid offered to buy it, funding part of its vulutre capitalisation by selling Dofasco to ThyssenKrupp for its last bid price. This dumbfounded Wall Street analysists, though some suspected but could not prove collusion between ThyssenKrupp and Mittal.
What Mittal gets is the Iron Ore out of Dofasco, which is what they want for their other Canadian and American mills and to be dominante player in the steel market in North America. ThyssenKrupp gets Dofascos steel operations. Overall its a brilliant play. It eliminates one of Mittals major competitors in Europe, gets it a sold source of Iron Ore, whose price will go up, and keeps ThyssenKrupp in line.
As Globe and Mail Reporter Eric Reguly points out this is all about increasing prices for Iron Ore and Steel and their impact on the global automotive market.It creates a further monopolizaition in the market place.
Think of the outcome of the merger mania as the steel world's answer to OPEC.
Pricing power is a polite way of saying prices will go up. About a tonne of steel goes into a car. Steel prices (for the industry standard hot rolled coil, whatever that is) have soared to about $550 a tonne from about $350 a couple of years ago.
If industry consolidation works the way the evil steel geniuses hope it works, you could see $750 steel. That means you'll pay $200 more for your car. Or it means GM and Ford, which need higher steel costs like they need another SUV rollover crisis, will get tipped into bankruptcy.
Anything made of steel, or with steel components, from air conditioners to washing machines, will cost a little bit more. That's inflationary and that's the price you'll have to pay for living with global-sized companies in the global economy. Tell your boss you want a steel surcharge on your salary (to go on top of the fuel surcharge). But we digress.
Don't blame poor Mr. Mittal. Trends beget trends and he's probably just reacting to the one that started not long ago among the iron ore producers. Iron ore is used to make steel. When iron ore goes up, steel goes up.
Iron ore prices have doubled since 2004. How did that happen? Try consolidation. Three companies that were already iron ore players -- CVRD of Brazil, BHP Billiton of Australia and Britain's Rio Tinto --went on buying sprees and now control about 80 per cent of global supply. Arcelor and ThyssenKrupp went after Dofasco partly because it pumps out more iron ore than it needs for its own steel production.
All of a sudden, a consolidated iron ore industry confronted a fragmented steel industry. It was a classic squeeze play. The steel makers had to pay high prices to the iron ore makers, but had trouble passing on the extra cost to the steel users. Merging the steel makers is the fix-it plan and it seems to be working beautifully.
Watch the next round of price negotiations with the auto makers. If they don't want to pay more, they can shop somewhere else. Good luck sucker! There ain't nowhere else.
But doesn't Economics 101 say that rising prices will attract competitors, pushing prices back down? Forget what you learned. Steel plants cost billions to construct. Would you authorize an investment of that size knowing that the guys who have the power to raise steel prices also have the power to drop them and make life miserable for wannabe competitors? Not likely.
This helps to explain why Mittal, Arcelor, ThyssenKrupp and the industry's other consolidators are willing to pay outrageous multiples for companies such as Dofasco. As an investor, the prices don't make sense.
But these guys aren't investors; they're strategic buyers. Paying $5.5-billion (Canadian) or so for Dofasco looks expensive on paper. The price, though, is still half the cost of building a Dofasco from the ground up and negotiating new sales contracts. In effect, the buyers are paying a premium for lasting pricing power.
Mittal was not a player in the bidding war for Dofasco since it had already bought into the North American market last years with the acquisition of American International Steel Group. With high praise from the Canadian born President of the USWA.
Man of steel soars ever higher
Leo Gerard, president of the United Steelworkers of America, describes Mr. Mittal as very smart and very strategic.
"This guy's got guts," Mr. Gerard says. "When you go from being perceived as a bottom feeder that doesn't have long-term durability and over 15 years become the possibility of a 100-million-ton company, you don't do that because you're risk-averse."
Mr. Gerard first encountered Mr. Mittal when the Indian entrepreneur tried to acquire a tiny steel maker in Johnstown, Pa., in the 1990s. He recalls that the union fought the deal on the basis of Mr. Mittal's reputation as a bottom feeder.
But at Sidbec, "they've invested a lot of money in that mill, so he's sort of moved away from his bottom-feeder mentality to one that invests a lot of money in the facilities," Mr. Gerard observes. "He buys them to run them."
One industry observer says Mr. Mittal lets local nationals manage the various organizations in 14 countries but there is always a Lakshmi Mittal loyalist, often an Indian-born manager, in some senior position, such as chief financial officer.
Mr. Mittal took over the title of industry leader in October, 2004, when his company bought International Steel Group Inc., controlled by Mr. Ross, who had taken advantage of a down cycle in the industry to assemble a collection of distressed U.S. steel assets. Mr. Ross did well on his investment, and is now one of Mr. Mittal's biggest board supporters.
The joy that Brother Gerard experesses is one of the new labour attitude towards globalization. It is begining to accept free trade as good for its members, that is good for the fragmented international (in name only) unions in North America versus their industrial counterparts in Europe such as the German and French unions. Like the competing national capitals and global monopolies in steel and automotives, these national unions only look after themselves.
Arcelor unions in France see job cuts if Mittal offer succeeds
In the case of Canada Brother Gerard has not been a friend of Canadian workers, as his union promoted American protectionism against cheap imported steel during the last WTO meeting in Hong Kong. See: Time For A Canadian Steel Workers Union Gerard is perhaps hoping that the silver lining of the takeover of Dofasco will open this once anti-union shop to a union drive for USWA.
In fact Mittal began as a small family based steel company in India and built its way into the market by actually using capital for production rather than using companies as capital for investors. If anyone is a bottom feeder in the world steel market it is the once dominant American steel industry. Which has sold off its holdings for a better corporate placement on Wall Street. Which has meant the closing of main street in Steel Towns across America.
And with success comes the trappings of success. Typical of the Corporate Monopoly capitalist with his trappings of the new economic Aristocracy the Mittal family was caught up in scandal in England. And with questions of how transparent their business practices are.
Mr Mittal is an intensely private family man but his name broke on to the business pages in 2002 when he was involved in a “cash for favours” political row. It emerged that shortly after Mr Mittal had made a £125,000 donation to the Labour Party, the Prime Minister wrote to his Romanian counterpart supporting a bid by the tycoon’s company, LNM, for Sidex, Romania’s state steel firm.
Mr Blair insisted that he did not know that Mr Mittal was a Labour donor and that he had offered his support because the deal, which went through for £300 million, represented British interests.
In 2004 the extravagant celebrations for the wedding of his daughter Vanisha propelled Mr Mittal back into the newspapers. The family hired the Palace of Versailles in Paris and paid Kylie Minogue and numerous Bollywood stars to perform for the 1,000 guests at a reported cost of £30 million.
Mittal CFO says family control worries misplaced
What Mittal has done as well is move from being a Private family owned company to becoming a major investor driven monopoly.
MITTAL STEEL’S audacious $23 billion (£13 billion) bid for Arcelor, its nearest rival, set off a political storm yesterday as the French and Luxembourg Governments expressed concern about the future of a major industrial employer. Thierry Breton, the French Finance Minister, said he was concerned about the “implications for European and French industry and for employment” if Mittal’s attempt to create the world’s first 100 million tonne-plus steelmaker succeeded.
The Luxembourg Government, which holds a 5.6 per cent stake in Arcelor, described the steel group as a “strategic interest”.
Arcelor’s board will meet tomorrow to consider Mittal’s unsolicited approach, which is 75 per cent paper and 25 per cent cash, but the Luxembourg-based group has already expressed concern at the hostile nature of the bid.
Mittal has offered €28.21 per Arcelor share, which represents a 27 per cent premium to Thursday’s closing price, a record high for the European steel group.
Lakshmi Mittal, the billionaire owner of Mittal Steel, did not rule out a higher offer yesterday.
The proposed $23 billion transaction includes a side deal that would see Dofasco, the Canadian steelmaker bought by Arcelor in the past few days, sold to ThyssenKrupp of Germany. Arcelor outbid ThyssenKrupp in a fierce battle for the Canadian group this week.
Arcelor deal to open up global markets
DELHI: In a move that will set about a churn in the global steel industry, Mittal Steel has made a $23bn hostile bid for its closest rival, Arcelor. Under the offer, Arcelor shareholders will get four Mittal Steel shares and e35.25 for every five Arcelor shares.
“We believe the offer provides a very attractive premium and has been structured, so that Arcelor shareholders have the opportunity to participate in the exciting growth potential of the combined company, whilst also receiving a generous cash element,” Lakshmi N Mittal, chairman and CEO, Mittal Steel, said after announcing the deal.
Citigroup, Credit Suisse, Goldman Sachs and HSBC are advising Mittal Steel. Analysts see the deal as one which will lead to major consolidation in an industry in the midst of a revival.
What worries Arcelor and the French government is that their state run monopoly is about to be absorbed into a much larger private monopoly, one that will impact on their automotive industry which relied on the cozy relationship between them to keep steel prices fixed and to keep car prices fixed. The fix was in and now it ain't.
Peugeot says 'cautious' on steel sector competition after Mittal's Arcelor bid
PARIS (AFX) - Peugeot said it is 'cautious' about the state of competition in the steel sector, following the takeover bid for Arcelor launched by Mittal Steel.
The group refused to express an opinion on the bid, but did say that it would follow events closely, 'in the knowledge that we already have concerns about the state of competition in the steel sector.'
Meanwhile, Renault has refused to comment on the takeover bid on the grounds that 'the operation is not complete' but, like Peugeot, it added that 'we are looking to limit as much as possible increases in the cost of raw materials.'
Steel Merger Would Hurt French Autos
1557 GMT [Dow Jones] A merger between Arcelor (5786.FR)and Mittal Steel (36194.AE) would hurt French car makers, says Jens Schaettner, automotive analyst at Dresdner Kleinwort Wasserstein. "It's generally negative news for the car industry, as it would increase the negotiating power of the steel makers. And it would be particularly negative for French companies, as Arcelor has traditionally been a main supplier to Renault (13190.FR) and Peugeot-Citroen (12150.FR). Renault +0.6% at EUR78, Peugeot-Citroen +0.1% at EUR49.06. (DGP)
Top 10 producers
Ranked by raw steel volume produced, in millions of tonnes.
2004
| Mittal Steel | Netherlands | 60.9 |
| Arcelor | Luxembourg | 50 |
| Nippon Steel | Japan | 32.4 |
| JFE Holdin | Japan | 31.6 |
| Posco | South Korea | 30.2 |
| Shanghai Baostel | China | 21.4 |
| U.S. Steel | United States | 20.8 |
| Corus | Netherlands, Britain | 19 |
| Nucor | United States | 17.9 |
| ThyssenKrupp | Germany | 17.6 |
Figures have been updated to include Mittal's acquisition of U.S.-based ISG in 2005 and the planned acquisition by Arcelor of Dofasco.
SOURCE: INT'L IRON AND STEEL INSTITUTE
Also see: Steel Wars-Why Isn't This An Election Issue
MITTAL A MODEL OF GLOBAL MONOPOLY CAPITALISM
What this means for automotive manufacturing in Europe and North America is the same. Increasing monopolization of Iron Ore and Steel as Reguly points out will increase prices. These price increases will go to the Automotive industry, already in a crisis, and will force up car prices. The consumer will pay.
But the monopolizaiton of Steel can also be seen as the evolution of capitalism, the big fish eating the small fish. In this case its impact will be felt not only on the Steel industry, and resourc industry in Canada around Iron Ore, but will be felt in the auto industry. An industry that is sadly a state capitalist monopoly in North America.
GM and Ford have failed to change. They have relied on state bailouts from both the U.S. and Canadian governments in the past. Chrysler on the other hand also took handouts but the last time it was bailed out it was sold to the Germans. Good deal that. Look at GM and Ford today economic basketcases. Though Ford has bought up companies in Europe and Korea it has not adapted to Toyotaism. In failing to do so they have become economically unviable. They need to be replaced. There is massive global overproduction of cars.
GM, the Delphi Concessions, and North American Workers: Round Two? by Sam Gindin
